2017 (7) TMI 148 - HC - VAT and Sales Tax

Classification of goods - rate of tax - Insect killer products - HIT Anti-Roach Gel - the assessing authority held that these goods are not pesticides/insecticides falling within the ambit of Entry 20 of the IV Schedule to the VAT Act and they were liable to be taxed at 12.5%/14.5% under Schedule V of the VAT Act as residuary goods - whether the products sold by the petitioners are insecticides and pesticides falling under Entry 20 of Schedule IV of the VAT Act or are unclassified goods chargeable to tax at the rate fixed in Schedule V? Factors to be taken into consideration in determining the classification of a product in tax statutes - Held that - If a provision which falls to be applied is found to be ambiguous a subordinate presumption comes into play namely that it is presumed that there was no intention to change the meaning of the provision which has been taken and repeated in the same or similar language in the subsequent Act. In such circumstances it may be relevant to try to determine the meaning of the relevant provision by looking at what it meant in a previous statute including by reference to authority on the provision as it appeared in that statute. Evolution of entry 20 of the IV schedule to the AP VAT ACT - Held that - From 1.01.2000 onwards the APGST Act in its first schedule incorporated a distinct entry i.e. Entry 203 which specifically provided for a higher rate of tax at 8% in respect of Mosquito repellants and devices of all kinds including electronic repellant devices refills mats coils and accessories thereof . Are the subject goods insecticides falling under entry 20 of the IV schedule? - Held that - Under the 1968 Act insecticides intended for household use which are formulations consisting of a small portion of active ingredients are considered a different class/category of insecticides. When the rigor of the Insecticides Act is relaxed for household insecticides which the subject products admittedly are can the extremely wide definition of an insecticide therein be applied to the said word used in Entry 20 of the IV Schedule and the said Entry be understood to bring within its ambit all forms of insecticides including household insecticides ? The answer to this question can only be in the negative. Whether one or more kinds of products containing its ingredients should be included under the Entry relating to pesticides is the exclusive prerogative of the State and during the period when one category is excluded from the purview of the entry it is not open to import the provisions of the Insecticides Act so as to enlarge the scope of the Entry under the Sales Tax Act. Where the words used in the entry are clear and unambiguous there is no need to refer to the meaning of the words used under other enactments. Do the subject products lose their identity as an INSECTICIDE on its mixture with other substances? - Held that - pesticides/insecticides as they are commonly known are mixed with LPG/Kerosene which is used as a propellant and after such a process a new product emerges which even under the Insecticides Act 1968 are separately classified as household insecticides . It is difficult therefore to hold that the subject goods are pesticides/insecticides as referred to in Entry 20 of the IV Schedule of the VAT Act. Is the scope of entry 20 restricted only to insecticides/pesticides used for agricultural purposes or does it include such goods when used for non agricultural purposes also? - Held that - Insecticides and pesticides which kill insects and pests which cause damage to plants are chemicals used for plant protection. As shall be elaborated hereinafter if the legislative intent was to include all forms of insecticides and pesticides within the ambit of Entry 20 it was wholly unnecessary to provide for a separate entry in Entry 100(140) for technical grade insecticides fungicides weedicides herbicides and pesticides that too at the same rate of tax at 4%/5%. It is evident therefore that the legislature intended to tax insecticides pesticides etc at a concessional rate only when they were used either as industrial inputs or for plant protection and not otherwise. The subject products dealt with by petitioners are used for purposes other than for plant protection or as industrial inputs. They are household insecticides considered as a separate class of goods even under the Insecticides Act and are outside the scope of Entry 20 of the IV Schedule. The products manufactured and sold by the petitioners though they contain a small percentage of Insecticide are used as a formulation not exceeding the percentage prescribed by the Government in terms of Section 36 (z-b) of the Insecticides Act and are registered and packed as specified for being sold as household insecticides . They are not insecticides as commonly understood and considered by people dealing with it or by those who put it to use. These products are largely urban household products and are not connected with plant protection which alone fall under Entry 20 of Schedule IV of the VAT Act. Can the statements of objects and reasons of an earlier statute and the white paper on VAY be relied upon? - Held that - While Entry 17 of Annexure I to the White Paper does not include plant protection equipment it includes among others insecticides and pesticides under the head goods with 4% floor rate . Under the caption VAT rates and classification of commodities the 4% VAT rate category was to comprise of items of basic necessities such as all agricultural and industrial inputs. It is evident therefore that only pesticides and insecticides used as agricultural and industrial inputs were extended the concessional rate of 4% tax. This understanding of the Empowered Committee in the White Paper has weighed with the State Legislature in providing for pesticides and insecticides when used as agricultural inputs/plant protection under Entry 20 and when used as industrial inputs under Entry 100(140) of the IV Schedule to the VAT Act. Can the dictionary meaning and trade parlance meaning of words not defined in the Act be relied upon? - Held that - the composition of the subject goods contains a very small portion of insecticide as its active ingredient. The product literature and the label classify the subject goods as household insecticide . When a consumer purchases these products he does not ask for a pesticide or an insecticide but asks for the product by its brand name as it is a household insecticide used to kill household insects and pests. People in the trade i.e the persons who sell the goods in the market and those who purchase it would ask for pesticides and insecticides when they require them as agricultural inputs or for plant protection. Even on application of the common parlance test the subject goods which are all household insecticides would not fall within the ambit of pesticides and insecticides under Entry 20 of the IV Schedule to the VAT Act. Effect of certification of Government Agencies - Held that - The certificate issued to the petitioners is by the Central Insecticides Board a body constituted under the Insecticides Act to regulate the manufacture sale distribution and use of insecticides. As noted hereinabove the Insecticides Act brings all kinds of insecticides within its ambit with a view to ensure the safety of human beings and animals from the use of such insecticides. As a person who manufactures products using any of the insecticides enumerated in the Schedule to the Insecticides Act is required to be registered under the 1968 Act the subject products were certified by the Board as household insecticides . The Insecticides Act has itself made an exception of household insecticides and has exempted it from the rigors of the Insecticides Act. The mere fact that it contains a very small portion of insecticides would not make the subject products pesticides and insecticides falling within the ambit of Entry 20. Would the interpretation placed on Entry 78 of Schedule I of the A.P.G.S.T. ACT be applicable to Entry 20 of schedule IV of the A.P. VAT ACT? - Held that - A pesticide formulation is a combination of active and inert ingredients that form an end-use pesticide product. Active ingredients in pure (technical grade) form are not suitable for application and pesticides are formulated to make them safer or easier to use. Entry 78-A of the I Schedule to the APGST Act brought within its scope technical grade pesticides or pesticides concentrate. Pesticide formulations (including household pesticides) do not fall within its ambit. If Entry 78 were to be read widely and construed as bringing within its fold all kinds of pesticides then pesticides concentrate and technical grade pesticides would also fall within the ambit of Entry 78 and it was wholly unnecessary for the legislature to have prescribed a separate entry i.e. Entry 78-A for pesticides concentrate and technical grade pesticides. Such a construction would also have rendered Entry 78-A redundant. Scope of Entry 100(140) OF THE IV Schedule - Held that - Entry 100 of the IV Schedule relates to goods when sold as industrial inputs and contains 235 sub-entries. It is only if all of them are sold as industrial inputs would they qualify to be taxed under this Entry. Entry 100(140) relates to technical grade insecticides fungicides herbicides weedicides and pesticides that too those used as industrial inputs to manufacture pesticides insecticides etc. If all forms of insecticides are understood to fall within the ambit of Entry 20 it was unnecessary for the legislature to separately provide for these goods in Entry 100(140). As pesticides and insecticides when used as industrial inputs fall under Entry 100(140) the pesticides and insecticides referred to in Entry 20 can only be those used for plant protection and not others. Specific entry prevails over the General Entry - Held that - It is no doubt true that in case of competing entries one falling under the specified items mentioned in the Schedules and the other a residuary entry the burden is on the revenue to show that the goods can by no conceivable process of reasoning be brought within the specific Entry. As noted hereinabove it is only if all kinds of pesticides and insecticides are held to fall within the ambit of Entry 20 can the subject goods which are household insecticides be said to fall within the said Entry. Such a construction would then render Entry 100 (140) redundant as technical grade pesticides which are classified under Entry 100(140) would also fall within Entry 20 - household insecticides which are neither used for plant protection nor do they constitute technical grade pesticides and insecticides used as industrial inputs for manufacture of pesticides and insecticides would not fall either under Entry 20 or 100(140) of the IV Schedule to the VAT Act. They would therefore be taxable at the revenue neutral rate of 12.5%/14.5% treating them as falling within the residuary items in Schedule V of the VAT Act. Applicability and effect of Competing entries in the same/different schedules of a tax statute - Held that - Agricultural implements which fell within Entry 226 of the I Schedule to the APGST Act have now been divided between Entry I of Schedule I and Entry I of Schedule IV of the VAT Act. While hand operated or animal drawn agricultural implements in Entry 226 are now classified under Entry I of Schedule I of the VAT Act power operated agriculture implements which hitherto formed part of Entry 226 of the I Schedule are now classified under Entry 1 of Schedule IV. Plant protection equipment which was classified within Entry 78 of the I Schedule to the APGST Act earlier are now brought under Entry 20 of the IV Schedule to the VAT Act. Even under the APGST regime other plant protection equipment were brought within a separate Entry (i.e. Entry 78) other than the entry relating to agricultural implements (i.e. Entry 226). The mere fact that both of them are in Schedule IV and are liable to tax at the same rate is of no consequence as pesticides and insecticides used for plant protection and technical grade pesticides and insecticides also fall within Schedule IV albeit in two separate entries (Entry 20 and Entry 100 (140)). Doctrine of NOSCITUR A SOCIIS and EJUSDEM GENERIS - Held that - The rule of nositur a sociis cannot however prevail where it is clear that the wider words have been deliberately used in order to make the scope of the defined word correspondingly wider. It is only where the intention of the legislature in associating wider words with words of narrower significance is doubtful or otherwise not clear that this rule of construction can be usefully applied; it can also be applied where the meaning of the words of wider import is doubtful; but where the object of the legislature in using wider words is clear and free from ambiguity this rule of construction cannot be pressed into service - Although the doctrine of ejusdem generis is to be applied with caution where in a legislative enactment there are strong reasons (a) from the history and circumstances connected with its passing (b) from the structure of the Act itself to indicate the real meaning of the Legislature the doctrine of ejusdem generis is one which not only can but ought to be applied. Is entry 20 a combined entry? - Held that - The mere fact that certain articles are mentioned under the same heading in a statute does not automatically mean that they all constitute one commodity. The inclusion of several articles under the same heading may also be for reasons other than that the articles constitute one and the same thing - In the present case however all the items in the first limb of Entry 20 are analogous to each other and their purpose is to provide plant protection. Entry 20 is a combined Entry which covers items viz. pesticides insecticides fungicides weedicides and plant protection equipment used for agricultural purposes. While the second part of Entry 20 deals with Plant Protection Equipment and Accessories thereof the first part of the Entry basically deals with products which gets consumed in the process of their application and are joined together with products of a physical nature which are used for plant protection ie they are not consumed in the process and are physically available for multiple uses. The goods mentioned in the first part of the Entry are applied by the use of the goods referred to in the second part. Should the meaning of words used in an entry in a schedule to a tax statute be ascertained in the light of development of science and technology? - Held that - The subject products manufactured by the petitioners would not be considered as insecticide in common parlance. These products are admittedly not used for agriculture/ plant protection. They are not essential requisites for agricultural production. These products are therefore liable to be taxed at a higher rate and not at the concessional rate @ 4 % / @ 5 %. While passage of time has no doubt resulted in new found uses of pesticides insecticides weedicides fungicides and herbicides what we are called upon to examine is whether the subject products fall within the ambit of an Entry in a Schedule to a Sales Tax enactment. As a Sales Tax enactment relates to levy of tax on commercial goods the words used in an Entry in a Schedule to a Sales Tax Act must be given the meaning attributed to it in the market by persons dealing with them daily and not in their technical or scientific sense. When construed in its popular sense it is evident that the words pesticides and insecticides used in Entry 20 relate to chemicals used as inputs for agriculture or plant protection and not to household insecticides used to kill household insects and pests. Reasons for exclusion of mosquito repellents from the ambit of entry 20? - Held that - exclusion of mosquito repellants from Entry 20 can be traced to the fact that the Sales Tax Appellate Tribunal had treated mosquito repellants as Insecticides . The legislature in its wisdom has excluded mosquito repellants in any form from its ambit. Thereby the Entry has been confined to agriculture/plant protection products only. It is not applicable to the assessee s products. Effect of an exclusion clause in an entry - Held that - mosquito repellents in any form were not pesticides/insecticides falling within the ambit of Entry 20. That does not however mean that the subject goods are insecticides / pesticides falling within the ambit of Entry 20. Are two views of entry 20 possible necessitating the one which favors the assessee to be adopted? - Held that - No entry similar to Entry 78A of the Schedule-I of the APGST Act or Entry 100(140) of Schedule-IV to the VAT Act - The subject goods therein were therefore held to be insecticide killers falling within the word insecticide . Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Classification of products under the VAT Act.
2. Applicability of the doctrine of noscitur a sociis and ejusdem generis.
3. Interpretation of exclusion clauses in tax entries.
4. Relevance of legislative intent and historical context in statutory interpretation.
5. Effect of competing entries in tax statutes.
6. Applicability of common parlance test in classification.
7. Impact of certification by government agencies.

I. Classification of Products Under the VAT Act:
The core dispute revolves around whether the products in question, such as HIT Aerosol CIK, HIT Aerosol FIK, HIT Rat, and HIT Chalk, should be classified as "pesticides and insecticides" under Entry 20 of Schedule IV of the VAT Act, thereby attracting a concessional tax rate of 4%/5%, or as residuary goods under Schedule V, attracting a higher tax rate of 12.5%/14.5%. The petitioners argue that these products are insecticides designed to kill pests and should be taxed at the concessional rate. The revenue contends that these products are household insecticides and do not fall under Entry 20, which is intended for agricultural and plant protection products.

II. Applicability of the Doctrine of Noscitur a Sociis and Ejusdem Generis:
The court applied the doctrines of noscitur a sociis and ejusdem generis to interpret Entry 20. The words "pesticides," "insecticides," "fungicides," "herbicides," and "weedicides" are understood in their cognate sense, primarily relating to plant protection. The court concluded that the common genus of these terms is plant protection, and the entry does not extend to household insecticides.

III. Interpretation of Exclusion Clauses in Tax Entries:
The exclusion of "mosquito repellents in any form" from Entry 20 was examined. The court noted that the exclusion clause was inserted to clarify that mosquito repellents are not considered insecticides under this entry. This exclusion does not imply that all other household insecticides fall within Entry 20. The court emphasized that the exclusion clause was meant to address specific judicial interpretations and did not broaden the scope of the entry to include household insecticides.

IV. Relevance of Legislative Intent and Historical Context in Statutory Interpretation:
The court considered the legislative history and the white paper on VAT to understand the intent behind Entry 20. The legislative intent was to provide a concessional tax rate for agricultural and plant protection products. The court noted that the legislative history and the white paper on VAT indicate that the entry was intended to cover essential requisites for agricultural production, not household insecticides.

V. Effect of Competing Entries in Tax Statutes:
The court examined the interplay between Entry 20 and Entry 100(140) of Schedule IV, which covers technical grade insecticides, fungicides, herbicides, weedicides, and pesticides used as industrial inputs. The court concluded that if all forms of insecticides were included in Entry 20, Entry 100(140) would be redundant. Therefore, Entry 20 should be interpreted to cover only those insecticides and pesticides used for plant protection.

VI. Applicability of Common Parlance Test in Classification:
The court applied the common parlance test, which requires that the words in a tax statute be understood as they are commonly understood in trade and by consumers. The court found that the subject goods are commonly understood as household insecticides, not as agricultural or plant protection products. Therefore, they do not fall within the ambit of Entry 20.

VII. Impact of Certification by Government Agencies:
The court considered the certification by the Central Insecticides Board, which classified the products as "household insecticides." The court noted that the Insecticides Act, 1968, treats household insecticides as a separate category and exempts them from certain regulatory requirements. The certification by the Central Insecticides Board does not automatically qualify the products as agricultural insecticides under Entry 20.

Conclusion:
The court dismissed the petitions, upholding the assessment orders and the VAT Appellate Tribunal's decisions. The court concluded that the subject goods are household insecticides and do not fall within the ambit of Entry 20 of Schedule IV of the VAT Act. They are therefore taxable under the residuary entry in Schedule V at the higher rate of 12.5%/14.5%.