2022 (3) TMI 689 - HC - VAT and Sales Tax

Classification of goods - Ujala Supreme - classifiable under Entry No. No.54 (113) of Schedule-A, Part II-A of H.P. VAT Act, 2005 as synthetic organic colouring matter or not? - HELD THAT - The Entry in Column-II of notification issued by the respondent detailing Industrial input and packing material entry against Entry 55 (113) of Schedule-A, Part II-A of H.P. VAT Act, denotes the HSN number, i.e Harmonized System of Nomenclature developed by International Customs Organization and adopted in the Customs Tariff Act, 1975. Noticeably, the Entry against serial No. 113 of the notification issued by respondent detailing Industrial input and packing material specified in Entry 54 of Part-2 of Schedule-A of the H.P. VAT Act, can not be said to be used without purpose. The only corollary that can be drawn from the use of HSN code is to have reference of the product viz-a-viz Customs Tariff Act, 1975 for the purposes of identification. Since the AVP is referable to item denoted by HSN code 3204 as adopted by Customs Tariff Act, 1975, the same can not be ignored for the purposes of H.P. VAT Act. The question of law framed in these petitions finds its answer on all fronts from the aforesaid judgment passed by Hon ble Supreme Court in M/S. MP. AGENCIES VERSUS STATE OF KERALA 2015 (3) TMI 787 - SUPREME COURT . The product Ujala Supreme is thus held to be classifiable under Entry 55 (113) of Schedule-A, Part II-A of H.P. VAT Act, 2005 as Synthetic organic colouring matter and assessable to the rate of VAT applicable to such Entry of Schedule-A. The product Ujala Supreme is held liable for VAT under H.P. VAT Act at the rate which is applicable for items against Entry 54(113) of the Part-II of Schedule-A of H.P. VAT Act - Petition allowed.

Summary

Issues Involved:
1. Classification of "Ujala Supreme" under H.P. VAT Act.
2. Applicable VAT rate for "Ujala Supreme".
3. Interpretation of relevant entries and schedules under H.P. VAT Act.
4. Reliance on precedents from other High Courts and the Supreme Court.

Issue-wise Detailed Analysis:

1. Classification of "Ujala Supreme" under H.P. VAT Act:
The primary issue is whether "Ujala Supreme" falls under Entry 54 (113) of Schedule-A, Part II-A of the H.P. VAT Act, 2005, as a "synthetic organic colouring matter." The petitioner claims that "Ujala Supreme," being a diluted form of Acid Violet Paste (AVP), should be classified under this entry. The respondent, however, argues that the product is sold in retail for direct consumer use and should be classified under the residuary category in Part-III of Schedule-A.

2. Applicable VAT rate for "Ujala Supreme":
The petitioner contends that the product should be taxed at 5% as per Entry 54 (113), while the respondent maintains that it should be taxed at 13.5% under the residuary category. The Assessing Officer, Appellate Authority, and Tribunal upheld the respondent's view, leading to the petitioner's revision before the High Court.

3. Interpretation of relevant entries and schedules under H.P. VAT Act:
The court analyzed Entry 54 and its sub-entry 113, which lists "synthetic organic coloring matter" with HSN code 3204.00.00. The petitioner argued that "Ujala Supreme," being a diluted AVP, retains its classification under this entry. The respondent countered that the product, being a retail item, does not qualify as an industrial input.

4. Reliance on precedents from other High Courts and the Supreme Court:
The court considered conflicting judgments from the Kerala and Guwahati High Courts. The Kerala High Court had ruled against the petitioner, stating that "Ujala Supreme" loses its identity as AVP after dilution. Conversely, the Guwahati High Court upheld that the product retains its essential characteristics of AVP. The Supreme Court in M.P. Agencies vs. State of Kerala (2015) 7 SCC 102 set aside the Kerala High Court's judgment, supporting the petitioner's stance.

Court's Analysis and Judgment:
The court noted that the Supreme Court's judgment in M.P. Agencies was directly applicable. The Supreme Court had held that mere dilution of AVP does not change its character, and thus, "Ujala Supreme" should be classified under the relevant entry for synthetic organic coloring matter. The court emphasized that the HSN code used in the entry should guide the classification, aligning with the Supreme Court's interpretation.

Conclusion:
The High Court concluded that "Ujala Supreme" is classifiable under Entry 54 (113) of Schedule-A, Part II-A of the H.P. VAT Act as "synthetic organic colouring matter" and is liable for VAT at the rate applicable to this entry. The orders of the Tribunal, Appellate Authority, and Assessing Officer were set aside, and the petitions were allowed. The product "Ujala Supreme" was held liable for VAT at 5%, as per the specified entry.