2018 (7) TMI 1767 - HC - VAT and Sales Tax

Classification of goods - Ecohume - benefit of exemption - Whether the said product Ecohume can be classified as an organic substance coming under Entry 17 of III Schedule of the Kerala General Sales Tax Act, 1963? Held that - It has to be understood that the scope and purpose of Entry 17 in III Schedule of the Act read together with the Explanation cannot be found analogous to Entry 31.011 of the Central Excise Tariff Act. No where in Annexure F order has it been held that Ecohume is an organic manure so as to import the finding to the requirement of Entry 17 read with the explanation. For the purpose of Central Excise Tariff Act what was required to be proved was that it is an animal or vegetable fertilizer, whether or not mixed together or chemically treated. But the scope of Entry 17 of III Schedule, especially in view of Explanation to Entry 17 as also Entry 47 of the First Schedule would indicate that what is required for the exemption to be granted under Entry 17, is that it should be an organic manure and applying the rule of ejusdem generis to the articles mentioned under Entry 17, which are cow dung, wood ash, poultry manure, green manure, compost, town compost, fish manure; organic manure can only be that produced or derived naturally from animals or plants not otherwise subjected to a manufacturing or chemical process - The purpose of Entry 17 is not to include all organic substances within its fold. The report of the Agricultural University also states the the product Ecohume is a growth promoter or a growth stimulant; which offers no aid to decide on the classification. A similar question came up for consideration before the Division Bench of this Court in Nelkadir Bone Industries v. Commercial Tax Officer, 2013 (5) TMI 29 - KERALA HIGH COURT , wherein the question that arose was whether the legislature was justified in including bone meal, under the head fertilizer in Entry 57(V) of the I Schedule to the Act instead of showing the same as organic manure in Entry 17 of third schedule of the KGST Act, and whether it is arbitrary and unreasonable and liable to be declared as organic manure entitled for exemption - it was held that Since it has been held that bone meal did not qualify to be an organic manure for the reason that it is not produced by a natural process, the principle laid down by the Apex Court has no relevance. The impugned finding of the Tribunal is not sustainable, and requires to be reversed as being perverse on facts for having relied on irrelevant factors and not having taken into account the relevant considerations - revision allowed.

Summary

Issues:
1. Classification of the product 'Ecohume' under Entry 17 of the III Schedule of the Kerala General Sales Tax Act, 1963.
2. Interpretation of relevant entries in the Act by the Sales Tax Appellate Tribunal.
3. Application of the rule of ejusdem generis to determine the classification of the product.
4. Consideration of certificates and orders from external authorities in the classification process.
5. Comparison of different entries in the Act for proper classification.

Issue 1: Classification of the product 'Ecohume' under Entry 17 of the III Schedule of the Kerala General Sales Tax Act, 1963:
The petitioner challenged the order of the Sales Tax Appellate Tribunal granting exemption to the product 'Ecohume' under Entry 17 of the III Schedule of the Act. The contention was that the product should be classified under Entry 47 of Schedule I. The Tribunal relied on certificates and orders to grant the exemption, leading to a dispute over the correct classification.

Issue 2: Interpretation of relevant entries in the Act by the Sales Tax Appellate Tribunal:
The Tribunal's decision to grant exemption to 'Ecohume' under Entry 17 was challenged on the grounds that the product was more akin to a bio-pesticide than organic manure. The Tribunal's reliance on certificates and orders without considering the specific entries under the Act was questioned, leading to a debate on the correct interpretation of the law.

Issue 3: Application of the rule of ejusdem generis to determine the classification of the product:
The rule of ejusdem generis, which suggests that general words following specific words should be interpreted to include only things of the same kind as those specified, was applied to analyze whether 'Ecohume' qualifies as an organic manure under Entry 17. The distinction between organic substances and organic manure was crucial in this classification process.

Issue 4: Consideration of certificates and orders from external authorities in the classification process:
Certificates from agricultural experts and orders from the CESTAT were crucial in determining the classification of 'Ecohume'. However, the Tribunal's reliance on these documents without a thorough analysis of the relevant entries and explanations raised concerns about the validity of the decision.

Issue 5: Comparison of different entries in the Act for proper classification:
The comparison between Entry 17 of the III Schedule and Entry 47 of Schedule I was essential in determining the correct classification of 'Ecohume'. The arguments presented by both parties regarding the nature of the product and its intended use added complexity to the classification process.

In conclusion, the High Court of Kerala reversed the Tribunal's decision, finding it unsustainable and based on irrelevant factors. The Court emphasized the importance of considering the specific entries and explanations in the Act, applying the rule of ejusdem generis, and ensuring that the classification aligns with the intended scope of each entry. The judgment highlighted the need for a meticulous analysis of the product's characteristics and production process to determine its correct classification under the relevant provisions of the law.