2012 (10) TMI 450 - HC - VAT and Sales Tax

Ujala Supreme - taxable @ 4% OR 12.5% - whether the product is substantially the same as its original material AVP or has it undergone a manufacturing process to transform itself into a commercially distinct identifiable end product - Held that - The product Ujala Supreme though is a highly diluted form of Acid Violate Paste (AVP) as has been rightly held by the learned Single Judge it retains the essential characteristics of AVP. Therefore it cannot be said to be commercially distinct and different from the user product AVP which is covered by Entry 114 of schedule II-C to the Act. Thus referring to Hon ble Supreme Court in the well known case of UNION OF INDIA Versus DELHI CLOTH AND GENERAL MILLS CO. LTD.(1962 (10) TMI 1 - SUPREME COURT OF INDIA) that manufacture signifies bringing into existence a new substance and not merely to effect a change in one. Therefore no justifiable reason to accept the submission of the appellant State that the product emerges out of a manufacturing process and to place the product in the residuary category in the fifth schedule to the Act. Therefore no different from the one taken by the learned Single Judge can be taken - in favour of assessee.

Summary

Issues Involved:
1. Classification of "Ujala Supreme" under the Assam Value Added Tax Act, 2003.
2. Whether "Ujala Supreme" is a diluted form of Acid Violet Paste (AVP) or a commercially distinct product.
3. Applicability of the Kerala High Court judgment in M.P. Agencies vs. State of Kerala.
4. Rate of tax applicable to "Ujala Supreme".

Detailed Analysis:

1. Classification of "Ujala Supreme" under the Assam Value Added Tax Act, 2003:
The primary issue was whether "Ujala Supreme" should be included in Entry No.114 of Schedule II C of the Assam Value Added Tax Act, 2003, which would make it taxable at 4%, or if it should be taxed as a residuary item at 12.5%. The learned Single Judge held that "Ujala Supreme" is entitled to be included in Entry No.114 of Schedule II C, thus taxable at 4%. This decision was based on the conclusion that "Ujala Supreme" is essentially a diluted form of AVP and retains its characteristics.

2. Whether "Ujala Supreme" is a diluted form of Acid Violet Paste (AVP) or a commercially distinct product:
The court examined whether "Ujala Supreme" undergoes a manufacturing process that transforms it into a commercially distinct product. The respondent argued that "Ujala Supreme" is merely a diluted form of AVP, containing 99.02% water and 0.08% AVP. The court referred to a certificate from Prof. V.R. Kanetkar, which stated that "Ujala Supreme" is chemically identical to AVP and is simply a heavily diluted form of it. The court concluded that "Ujala Supreme" retains the essential characteristics of AVP and is not a commercially distinct product.

3. Applicability of the Kerala High Court judgment in M.P. Agencies vs. State of Kerala:
The Commissioner of Taxes, Assam, had relied on the Kerala High Court judgment in M.P. Agencies, which held that "Ujala Supreme" is a finished product distinct from AVP and should be taxed at a higher rate. However, the Gauhati High Court found that the Kerala judgment did not consider the clarification provided by Prof. V.R. Kanetkar, which stated that "Ujala Supreme" retains the dyeing properties of AVP at elevated temperatures in the presence of acid. The Gauhati High Court disagreed with the Kerala judgment and held that "Ujala Supreme" should be classified under Entry No.114 of Schedule II C.

4. Rate of tax applicable to "Ujala Supreme":
The court concluded that "Ujala Supreme" should be taxed at the rate applicable to synthetic organic coloring matter under Entry No.114 of Schedule II C, which is 4%. The court rejected the argument that "Ujala Supreme" should be taxed as a residuary item at 12.5%, as it retains the essential characteristics of AVP and does not undergo a manufacturing process that creates a new substance.

Conclusion:
The Gauhati High Court upheld the decision of the learned Single Judge, holding that "Ujala Supreme" is a diluted form of AVP and should be classified under Entry No.114 of Schedule II C of the Assam Value Added Tax Act, 2003, with a corresponding rate of duty at 4%. The court dismissed the appeal by the State, finding no merit in the argument that "Ujala Supreme" is a commercially distinct product requiring a higher tax rate. The decision emphasized that the product retains the essential characteristics of AVP and does not undergo a manufacturing process that transforms it into a new substance.