2018 (7) TMI 837 - HC - VAT and Sales Tax

Classification of goods - dyes and chemicals, Ammonia Victoria blue, rhodamine, methyl violet, oil blue, oil green and croum scarlet - whether the goods purchased and sold by the assessee, viz., Ammonia Victoria blue, rohodamine, methyl violet, oil blue, oil green and croum scarlet, which according to them, are basic dyes and acid dyes, taxable at 8%, as per Entry 16 of Part C of the First Schedule or colours and pigments, liable to tax at 16% under Entry 18(II) and (III) of Part E of the 1st Schedule? Held that - During the assessment year 2000-01, most of the purchases are made from Ahmadabad, Mumbai, Sinnar and other places and a cursory look at the interstate purchase details, reveals that the sellers are mostly dealing with chemicals and to name a few., Aspit Enterprises, Ahmadabad, Shree Dye Chemicals, Ahamadabad, Tirupati Dye Stuff, Ahmadabad, etc. - Similarly, perusal of the local sale purchases, also reflect purchase from sellers, dealing with chemicals. Details found in the assessment file, do not suggest strong evidence that the sellers are engaged in sale or paints or enamels. Goods grouped in Entry 18(II) and (III) of Part E of the 1st Schedule, relate to paints and enamels not otherwise specified in this schedule including powder paints, stiff paste paints and liquid paints; colours; and pigments, including water pigments and leather finishes. In Tejraj Paramel v. State of Orissa 1994 (11) TMI 406 - ORISSA HIGH COURT , it is held that the meaning of the word has to be judged by the company it keeps. When the group of words in Entry 16 of Part C of the 1st Schedule speaks of dyes, which is soluble, the goods mentioned in Entry 18(II) and (III) of Part A of the 1st Schedule, relate to paints and enamels, colours, pigments, etc. As rightly observed by the Tribunal, Legislature has grouped the goods, dyes in a different entry than paints, enamels, powder paints, colours and pigments, etc. Approach of the Tribunal in ascertaining the legislative intent with reference to the disputed word and scrutiny of the purchase invoices of the assessee, to ascertain the goods purchase and sold, to arrive at a conclusion that the goods sold are dyes , taxable at 8% as per Entry 16 of the Part C of the 1st Schedule, cannot be said to be perverse. Tax Case Revision is dismissed.

Issues Involved:
1. Classification of the goods sold by the respondent as either "dyes" or "colours and pigments" for tax purposes.
2. Determination of the applicable tax rate (8% or 16%) under the relevant entries of the Tamil Nadu General Sales Tax Act, 1959.
3. Examination of the Tribunal's interpretation and application of legal principles regarding the classification of goods.

Issue-wise Detailed Analysis:

1. Classification of Goods:
The primary issue revolves around whether the goods sold by the respondent, namely Ammonia Victoria blue, rhodamine, methyl violet, oil blue, oil green, and croum scarlet, should be classified as "dyes" under Entry 16 of Part C of the First Schedule or as "colours and pigments" under Entry 18(ii) of Part E of the First Schedule of the Tamil Nadu General Sales Tax Act, 1959.

The Appellate Assistant Commissioner (CT) concluded that these goods are "dyes" by noting that they fit the description provided under Entry 16 of Part C, which includes various types of dyes such as acid dyes and basic dyes. The Tribunal supported this conclusion by referring to the Central Excise classification of the goods under tariff subheading 3204.29 as synthetic organic dyes.

The Tribunal and the Appellate Assistant Commissioner emphasized that the interpretation of the terms in tax statutes should align with how merchants and consumers generally understand them, rather than their technical or scientific meanings. They noted that "dyes" are intermediary chemical products used for coloring, while "pigments" are substances used for coloring and are associated with paints and other allied products.

2. Applicable Tax Rate:
The dispute over the applicable tax rate stems from the classification of the goods. If classified as "dyes" under Entry 16 of Part C, the applicable tax rate is 8%. Conversely, if classified as "colours and pigments" under Entry 18(ii) of Part E, the tax rate would be 16%.

The Appellate Assistant Commissioner and the Tribunal both determined that the goods sold by the respondent are "dyes" and thus taxable at 8%. They rejected the Assessing Officer's revised classification of the goods as "colours and pigments" taxable at 16%.

3. Tribunal's Interpretation and Legal Principles:
The Tribunal's approach in interpreting the legislative intent and scrutinizing the purchase invoices to ascertain the nature of the goods was upheld. The Tribunal relied on the principle that the meaning of words in tax statutes should be understood in the manner in which they are popularly understood by merchants and consumers.

The Tribunal also referred to the legal principle that when the meaning of a word is of wider import, the legislative intent should be ascertained by reference to adjoining words, which lend their color and meaning to the disputed word. They noted that the entry for "dyes" is distinct from the entry for "pigments," which is associated with paints and other allied products.

The High Court found no material irregularity or illegality in the orders of the appellate authority and the Tribunal. The Court also referred to various judgments defining "perverse" findings and concluded that the Tribunal's decision was not perverse, as it was based on acceptable evidence and logical reasoning.

Conclusion:
The High Court dismissed the Tax Case Revision, affirming that the goods sold by the respondent are "dyes" taxable at 8% under Entry 16 of Part C of the First Schedule. The Tribunal's interpretation and application of legal principles were upheld, and no costs were awarded.

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