2019 (1) TMI 364 - SC - VAT and Sales Tax

Classification of an item - Gypsum - RVAT Act - whether gypsum board would fall within this Entry 56, and be taxed at 4%, for the relevant assessment years, or whether it would fall in the then residuary Entry 1 of Schedule V, to be taxed at 12.5%? - change of the Entry by a conscious decision of the legislature, whereby the Entry of mere gypsum was changed to gypsum in all its forms - original composition of gypsum - process of conversion into gypsum board. Held that - The amended Entry 56 of Schedule IV of the RVAT, read as gypsum in all its forms , would include gypsum board under the term all its forms . It can hardly be doubted that a meaning has to be given to the Entry made by the legislature, expanding the original Entry from gypsum to gypsum in all its forms . If the object was to include only gypsum , then why would the Entry be changed to gypsum in all its forms ? The corollary would also be as to what is meant by in all its forms , as it is not, as if mere geometrical alteration of a shape would form part of the Entry. In such a situation, the original Entry itself was comprehensive enough to have included it - In the present case, there is really no chemical change which occurs in the substance as dehydration only reduces the water content and thereafter, it is mixed with additives for the purpose of increasing bonding and other related purposes. Substantively, the character of gypsum is not changed in the mechanical exercise of converting it into a board along with, of course, certain chemical processes of heating and mixing, to achieve an ultimate objective. Wherever an expression in all its forms is used, it has resulted in an expanded meaning, which is a logical corollary of such an expression being added to the original Entry. To take a view to the contrary in the given situation would amount to giving no meaning to the added expression as there are really not too many possibilities on what could have been included in such an expression. Also, in terms of notification No.S.O.36.No.F.12(59)FD/Tax/2014-14 dated 14th July, 2014, the RVAT was amended to include, in Schedule V, a separate Entry under item No.19(viii) gypsum board and other false ceiling material . Thus, the legislature by a conscious decision in 2014, sought to create a separate Entry for gypsum board, which was not the case in respect of the assessment years in question - This, in our view, belies the endeavor to include gypsum board in the residuary Entry, before such specific inclusion as then there would have been no need for such an Entry. The obvious attempt is to exclude it from gypsum in all its forms in Schedule IV of RVAT and create a separate Entry in Schedule V, whereafter it would naturally be governed by the tax rate applicable to the Entry in question. Appeal dismissed.

Summary

Issues Involved:
1. Tax classification of 'gypsum board' under the Rajasthan Value Added Tax Act, 2003 (RVAT).
2. Interpretation of the term "gypsum in all its forms" in Entry 56 of Schedule IV of RVAT.
3. Applicability of the common parlance test in tax law interpretation.
4. Relevance of judicial precedents in similar tax classification cases.

Detailed Analysis:

1. Tax Classification of 'Gypsum Board' under RVAT:
The primary issue was whether 'gypsum board' should be taxed at 4% under Entry 56 of Schedule IV of RVAT, which specifies "gypsum in all its forms," or at 12.5% under the residuary Entry 1 of Schedule V. The Additional Commissioner initially opined that 'gypsum board' is a separate commercial product and should be taxed at 12.5%. This decision was challenged by the assessee, leading to a series of appeals culminating in the Supreme Court judgment.

2. Interpretation of "Gypsum in All Its Forms" in Entry 56 of Schedule IV of RVAT:
The Court emphasized that the legislative amendment from "gypsum" to "gypsum in all its forms" indicated an intent to broaden the scope of the entry. The Court examined the manufacturing process of gypsum board, noting that it involves dehydration and mixing with additives but retains the essential chemical composition of gypsum. The Court concluded that 'gypsum board' falls within "gypsum in all its forms" because the primary raw material remains gypsum, and the changes are mainly physical and not chemical.

3. Applicability of the Common Parlance Test:
The Court reiterated the principle that tax statutes should be interpreted based on the common parlance or popular meaning of terms rather than their scientific definitions. This approach aligns with previous judgments, such as in Trutuf Safety Glass Industries v. Commissioner of Sales Tax, where the term "in all forms" was interpreted to include various forms of the same commodity.

4. Relevance of Judicial Precedents:
The judgment referenced several precedents to support its conclusion:
- Commissioner of Sales Tax, Mumbai v. India Gypsum Ltd.: The Bombay High Court held that 'gypsum board' falls under "gypsum of all forms and descriptions" due to its primary composition being gypsum.
- State of Gujarat v. Sakarwala Brothers: The Supreme Court held that products with the same chemical composition as the original substance fall within the same tax entry.
- Trutuf Safety Glass Industries v. Commissioner of Sales Tax: The Court distinguished between "all kinds" and "in all forms," emphasizing that the latter includes different forms of the same commodity.
- State of Jharkhand v. LA Opala R.G. Ltd.: The Court observed that terms in tax statutes should be interpreted in their common and popular sense.
- Rajasthan Roller Flour Mills Assn v. State of Rajasthan: The Court held that processed products retaining the essential characteristics of the original commodity fall within the same tax entry.
- Alladi Venkateswarlu v. Govt. of Andhra Pradesh: The Court included parched and puffed rice within the term "rice" as they retained the identity of rice.
- Tungabhadra Industries Ltd. v. The Commercial Tax Officer, Kurnool: The Court held that hydrogenated groundnut oil remained within the entry for groundnut oil despite chemical changes.

Conclusion:
The Supreme Court concluded that 'gypsum board' should be classified under Entry 56 of Schedule IV of RVAT as "gypsum in all its forms," taxed at 4%. The Court reasoned that the legislative amendment intended to broaden the scope of the entry and that 'gypsum board' retains the essential characteristics of gypsum. The decision was supported by the common parlance test and relevant judicial precedents. The Court also noted that a subsequent legislative amendment in 2014 created a separate entry for 'gypsum board,' indicating that it was previously included under "gypsum in all its forms." The appeals were dismissed, and each party was left to bear its own costs.