COMMON PARLANCE TEST

[Mr. M. GOVINDARAJAN]

                        Many a case has arisen in tax matters in interpretation of tax provisions.  The Sales tax enactment is one, according to Kerala High Court as held in ‘New Prasanthi AutomobilesCo., V. State of Kerala’ – 91 STC 565 (Kerala) which touches the common man and his every day life and therefore, must be understood in the way in which a common man will understand it.   In other words, the test is as to what a common man viewing or dealing with, the article will understand it to be.  Thus for interpretation of sales tax provisions ‘common parlance test’ is utilized. 

                        Regarding ‘Common parlance test’ the Supreme Court in ‘M/s Trutuf Safety Glass Industries V. Commissioner of Sales Tax, UP’ – 2007 (7) SCC 24 held that it is settled position in law that while interpreting the entry for the purpose of taxation recourse should not be made to the scientific meaning of the terms or expressions used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them.   This is what is known as COMMON PARLANCE TEST.    The dictionary meaning of ‘glassware’ means an article made of glass.   The High Court proceeded on the basis that while interpreting the words ‘glass and glass wares’ in the entry, it should be interpreted as it is understood by the persons dealing in them.   The High Court held that the articles manufactured by the assessee cannot be described as glass or glass wares.   The view of the High Court would have been correct had the expression ‘in all forms’ not succeeded the expression ‘glass and glass wares’. 

                        The Supreme Court in another matter in ‘Ramavatar Budhaiprasad V. Assistant Sales Tax Officer,Akola’ – 1961 (12) STC 286 held that the word must be construed not in any technical sense but as understood in common parlance.  The Judgment reads that the word ‘vegetables’ in item 6 of Schedule II of the C.P. and Berar Sales Tax, 1947, must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance.   It has not been defined in the Act and being a word of every day use it must be construed in its popular meaning ‘that sense which people conversant with the subject matter with which the Statute is dealing would attribute to it.   It is therefore to be understood as denoting class of vegetables which are grown in a kitchen garden or in a farm and are used for the table.   Consequently ‘betel leaves’ are not vegetables and would not be exempt from sales tax under item 6 of Schedule II of C.P. and Berar Sales Tax Act, 1947. 

                        In another case the Supreme Court in ‘Mukesh Kumar Aggarwal & Company V. State of Madhya Pradesh and Others’ – 1988 (68) STC 324 held that the nature of the goods cannot be determined by the test of use to which they are capable of being put.   The user test is logical but inconclusive.   The particular use to which an article can be applied in the hands of a special consumer is not determinative of the nature of the goods.    The Supreme Court in this case further held that in a taxing statute words which are not technical expressions or words or art, but are words of every day use, must be understood and given a meaning, not in their technical or scientific sense, but in a sense as understood in common parlance i.e., ‘that sense which people conversant with the subject matter with which the statute is dealing, would attribute to it’.  Such words must be understood in their popular sense.   The particular terms used by the legislature in the denomination of articles are to be understood according to the common commercial understanding of those terms and not in their scientific and technical sense ‘for the legislature does not support our merchants to be naturalists or geologists or botanists’.   The expression ‘timber’ is analyzed in this case.   The expression ‘timber’, it seems has an accepted and well recognized legal connotation and is nomen juris.   It has also a popular meaning as a world of everyday use.   In this case, the two meaning of ‘timber’ the legal and the popular coalesce and are broadly subsumed in each other. 

                        The Gujarat High Court in ‘Haran D. Manufacturing Company V. State of Gujarat’ – 1993 (91) STC 130 held that if any term or expression has been defined in the enactment then it must be understood in the sense in which it was defined.   But in the absence of any definition being given in the enactment the meaning of the term in common parlance or commercial parlance has to be accepted.  In this case the term ‘soap’ has been analyzed.   The term ‘soap; is not defined in the Act.   The product sole by the applicant-dealer was known as ‘soap’ in the particular trade, and it was also used by the consumer as a soap for washing the clothes.   The true meaning of this term in the popular parlance would be flowing from its predominant use.   It is, therefore, held that in interpreting the term ‘soap’ the real test would be functional test or the test or predominant user, and there is no reason to exclude ‘detergent soap’ from the meaning of the term ‘soap’. 

.                       In ‘Gopalan and Rasayan V. State of Maharastra’ – 2010 -TMI - 203318 – (BOMBAY HIGH COURT) the applicant is a manufacturer of sulphuric acid and other chemicals and products.   During the process of such manufacturing activity, the steam is generated which is being sold by the applicant as a by product on which the appellant collected the tax 4% on the footing that the steam was a chemical.   The steam, according to the applicant is a chemical under Bombay Sales Tax Act, 1957 (‘BST Act’ for short) and it is taxable at 4% under the Notification Entry No. 233 issued under Section 41 of  BST Act during the material time.   The assessing authority held that the steam was covered by Entry No. 102 of Schedule C Part II.   Therefore it is not classifiable as chemical.   The Assessing Authority, while making the assessment for the period from 1.1.1998 to 31.3.1989, 1.4.89 to 31.3.90 and 1.4.90 to 31.3.91 under BST Act, 1959 held that the steam was covered by Schedule Entry C-11-102 eligible to tax @ 10%. 

                        In the appeal the case was decided against the applicant.  He preferred the second appeal before the Maharastra Sales Tax Tribunal, Mumbai.   The appeal was partly allowed by the Tribunal holding that the steam is not chemical for the purpose of Notification Entry No.2 33 and levy of tax under the Schedule Entry No. C-II-102 at the rate of 10% is proper.   The Tribunal reduced the interest under Sec. 36(3) of the said Act. 

                        The applicant, aggrieved by the order, filed the present Reference Applications under Section 61 (1) of the BST Act.  The Tribunal referred the following questions of law for the opinion of the Court: 

• Whether on the facts and evidence on record the Tribunal was justified in law in rejecting the contention of the Applicants that the steam was a chemical and hence, sales thereof were exigible to sales tax @ 4% only?
• Whether on the facts and the circumstances of the case, the Tribunal was justified in law in throwing the burden on the Applicants to prove that the steam was a chemical as understood in common parlance and thereby, confirming the levy of sales tax on its sales @ 10%? 

The applicant contended the following: 

• The meaning of the word ‘steam’ given in Twentieth Century Chambers Dictionary (1972 Edition) as ‘a substance obtained by chemical means or used in chemical operations’;
• The steam is chemical as per the science of chemistry and chemical technology and therefore covered by Notification Entry No. 233 calling for levy of tax @ 4% only;
• Both the authorities below failed to consider the dictionary meaning of the term ‘chemical’ and also various extracts produced by them from the books of Chemistry;
• A note give by Chemical Engineering Division, Department of Chemical Technology,UniversityofBombayhad also been produced before the Authority;
• Though the Tribunal held that scientifically the steam is a chemical as much as water, however, failed to classify the same under Notification Entry No. 233;
• Ice is water in solid form whereas the steam is in gaseous form of water.   It is also known as vapor.   The difference between vapour and steam perhaps lies in the energy contents.   These facts were not even disputed by the Assessing Authority and did not object to refer the steam as chemical in its scientific sense;
• The Tribunal having accepted that technically and scientifically the steam is a chemical it ought not to have rejected the contention only on the ground that there was no common parlance evidence;
• It is by now well established that there are several other tests which in absence of common parlance evidence have been considered and applied by various High Courts and theApex Courtwhich are-

-         source definition test;

-         functional test;

-         character & composition test;

-         dictionary meanings;

-         technical or scientific meaning; and

-         user test. 

• The Tribunal ought to have considered that the term ‘chemical’ is a generic term like many others used in the BST Act and there can be no common parlance evidence for the term ‘chemical’;
• Common parlance can be resorted to only for a specific time and that too only in regard to the words of day to day use by a common man;
• The Tribunal overlooked the position that the steam dealt with by the applicant was not used by the common man and therefore, the insistence of the common parlance evidence by the Tribunal was not justified;
• In commercial transaction the steam is to be understood as chemical and thus, the authorities below erred in coming to the conclusion that for the purpose of sales tax the meaning of common parlance is to be taken into consideration;
• The Government of Maharashtra issued Notification dated 07.10.1995 and enlisted certain goods on the basis of excise tariff to be chemicals.   This list of chemicals contains an item 28.11.90 which pertains to steam sold by the applicant and that steam was considered as a chemical by the State Government. 

The Department contended the following: 

• The Sales Tax laws are not much concerned with the chemistry and the use of scientific definitions and technical manner of an of an item are hardly of common use while applying the sale tax laws;
• The terms and names used in the sales tax laws have to be understood and construed in their popular sense or in commercial parlance;
• The Tribunal never said that the steam is not a chemical but for the purpose of sales tax laws, the test of common parlance is inevitable;
• The steam is nothing but a steam commonly understood and not a chemical;
• So far as the classification of the steam is concerned the steam is not classified in any item under the Sales Tax Laws during the relevant period, therefore, the steam is to be read in Schedule Entry No. C-II-102 i.e., residuary one and therefore, the applicant is liable to pay sales tax @ 10%;
• Where a word has a scientific or technical meaning and also an ordinary meaning then the ordinary meaning must be given consideration while deciding the classification under the Sales Tax Laws;
• While deciding whether a particular commodity is a chemical, it must be determined not by the use for which a particular purchaser purchases it with reference to the general property which makes it saleable to the entire range of a prospective buyers;
• The second line of argument advanced by the applicant w.e.f. 7.10.95 the Government has issued a list of chemicals for the purposes of BST Act and in that list the description of goods at 28.11.90 pertains to the steam.   Therefore, according to the Applicant the steam is considered as a chemical by the Government even prior to the date of the said notification.   In this regard, the Tribunal observed that this notification is not having retrospective effect and the applicant cannot take help of subsequent amendment to interpret the prior entry, so the subsequent amendment cannot be read into the earlier entries;

On considering the arguments of both sides the Court held the following:

v  The Sales Tax enactment is one which touches the common man and his every day life.   Therefore the terms in the said enactment must be understood in the manner in which a common man will understand them;

v  Generally the steam includes all liquid and frozen surface water, ground water held in soil and rock and atmospheric water vapor.   In common speech, the steam most often refers to the visible white mist that condenses above boiling water as the hot vapor mixes with the cooler air.  This mist consists of tiny droplets of liquid water.  Pure steam emerges as the base of the spout of a streaming kettle where there is no visible vapor;

v  In common sense, the steam is treated as by product of water and for preparation of the steam the process is just to boil water.   Therefore, the common man always treat the steam as part and parcel of water;

v  It is a fact that in taxing statute the words which are not of technical expressions or words of art but are words of every day use, must be understood and given a meaning, not in their technical or scientific sense, but in a sense as understood in common parlance;

v  In the absence of meaning of any term given in the enactment, the meaning of that term in common parlance or commercial parlance must be adopted;

v  In this case though the assessee has produced the experts’ opinion, some articles published in the magazine viz.,  Outlines of Chemical Technology, opinion from Chemical Engineering Department of the University of Bombay and extract from the Chamber dictionary, in support of his contention that the steam is chemical, but there is nothing to indicate that the term steam in common parlance or commercial parlance is considered or treated as chemical;

v  Therefore for the purpose of taxing under the Sales Tax laws it is not possible to hold that the steam is chemical.

The High Court held that the Tribunal has rightly held that the steam cannot be classified under the Notification Entry No. 233 as the same is not chemical.   Therefore both the questions referred above are answered in favor of the revenue and against the assessee.

                        From the above discussions it is clear that sales tax enactment touches common man and his every day life and terms in such enactment must be understood in the manner as a common man would understand them.  The test is as to what common man viewing or dealing with the article will understand it to be.   The particular use to which particular customer may put it should be eschewed from consideration.  Whether this concept is also applicable to the provisions of Goods and Service Tax which is to be introduced in the next year?