2017 (9) TMI 677 - HC - VAT and Sales Tax

Insecticide - classification of goods - whether the Tribunal erred in law in classifying Good Knight Advanced Fast Card under the residuary entry without establishing that Good Knight Advanced Fast Card can by, no conceivable process of reasoning be brought under Entry No. 20 Schedule II of U.P. VAT Act, 2008? Held that - It is settled law that when one particular item is covered by one specified entry then the Revenue is not permitted to travel to the residuary entry - It is settled law that onus or burden to show that a product falls within a particular tariff item is always on the Revenue. If the Revenue leads no evidence then the onus is not discharged. The Tax Authority would have to make an enquiry to produce evidence to show that in common parlance Fast Card is a product akin to Mosquito repellent/destroyer Mat. Mats, coils, liquid, spray and fast card may or may not qualify as mosquito repellent/destroyer but having due regard to their chemical composition some of the products may be insecticide within the meaning of the Insecticide Act, but that what is excluded from Entry 20 is not all kinds of products used as Mosquito repellent/destroyer but only a particular kind of product mentioned, therein, viz. coils, mats and liquids and no other. Had the legislature intended to exclude all kinds of products used as Mosquito repellent/destroyer, as opined by the Tribunal, the legislature would have aptly used the expression excluding Mosquito repellent/destroyer or excluding All Mosquito repellent/destroyer or excluding Mosquito repellent/destroyer coils, mats, liquids etc. . The expressions, hereinabove, is not unknown to the legislature, rather, similarly worded expression has been employed in other entries of the same Schedule - Tribunal committed gross error in misreading the exclusion clause of Entry 20 to conclude that the intention of the legislature was to exclude all Mosquito repellent/destroyer including Fast Card since being a Mosquito repellent/destroyer - Tribunal committed an error in coming to a conclusion that Mats would include Fast Card. To reach such a conclusion Tribunal embarked upon a course of comparing the shape and size of the product viz. Mats and Fast Card. In classification, such a course is not available, if adopted may lead to erroneous results deviating from the intended intention of the legislature as expressly provided from the plain language employed by the legislature. The matter is remitted to the Tribunal to decide afresh in the light of the settled principle of law - revision allowed by way of remand.

Summary

Issues:
1. Classification of "Good Knight Advance Fast Card" under the UP VAT Act, 2008.

Detailed Analysis:

Classification Issue:
The revision before the Allahabad High Court arose from the Commercial Tax Tribunal's order dismissing the appeal of the revisionist regarding the classification of "Good Knight Advance Fast Card" under the UP VAT Act, 2008. The primary questions of law were whether the Fast Card falls under the insecticide category and if the Tribunal erred in classifying it under the residuary entry without proper reasoning. The Tribunal's decision was based on the exclusion of "Mosquito repellent/destroyer coils, mats, and liquid" from Entry No. 20 of the Act. The revisionist argued that Fast Card should not be considered part of the excluded category and should be classified as an insecticide due to its composition and use as a household insecticide.

The revisionist contended that Fast Card and Mosquito Repellent Mat are distinct products in common commercial understanding, with different compositions and usage mechanisms. They highlighted the chemical composition of Fast Card, primarily containing transfluthrin, a recognized insecticide. The revisionist also referenced previous court decisions establishing Mosquito repellent/destroyer products as insecticides. The principle of interpreting trade terms in their commercial sense was emphasized, stating that the understanding of dealers and consumers is crucial in determining classification.

Moreover, the High Court emphasized that the legislative intent should be derived from the plain language of the statute and the common understanding of the products in trade. The Court rejected the Tribunal's interpretation that all Mosquito repellent/destroyer products were excluded from Entry No. 20, emphasizing that only specific items like coils, mats, and liquids were excluded. The Court also criticized the Tribunal's comparison of the shape and size of Mats and Fast Card for classification, stating that such an approach could lead to erroneous results deviating from legislative intent.

In conclusion, the High Court set aside the Tribunal's order and remitted the matter for fresh consideration, instructing the Tribunal to apply the established legal principles in determining the classification of "Good Knight Advance Fast Card" under the UP VAT Act, 2008. The judgment underscored the importance of interpreting tax statutes based on commercial understanding and legislative intent, rather than technical or scientific definitions, to ensure accurate classification of goods for taxation purposes.