2021 (2) TMI 958 - HC - VAT and Sales Tax

Classification of goods - rate of tax - Brass fittings i.e., Elbow, Tee, Socket, Union, Hex Nipples, Hose Colour, Pillar tap Inner fittings, etc. - Bib Cocks Brass or C.P., Brass Ball cock, brass Long body Bib cock C.P., Brass Short Body Bib Cock C.P., Brass Sink Cock C.P., Brass Angle Cock C.P., Brass Wall Mixers C.P., Brass Showers C.P., Brass shower Arm C.P., Brass Foot valve, etc - taxable at the rate of 12.5% or to be treated as items coming under Entry 3(2) of Third Schedule of the KVAT (Amendment) Act, 2005 and taxable at the rate of 4%? - Validity of Clarification under Section 94 of the KVAT Act, 2003 - HELD THAT - Chapter 74 deals with Copper and articles thereof . The Note at the beginning of the Chapter says that it would take in alloys of copper also. Several items of copper are dealt with under different four digit HSN Codes bearing Nos. 7401 to 7419. HSN 7418 specifically deals with sanitaryware and parts thereof of copper. The four digit code HSN 7419 says other articles of copper. From the use of the word other in the heading of HSN 7419, it is amply clear that it refers to articles which are not mentioned elsewhere. When it comes to HSN 7419.99, again it is shown as other , so as to mean that the items mentioned subsequently are not items specified earlier. Therefore, HSN 7419.99.30 with which Entry 3(2) of the Third Schedule of the Act is aligned, cannot be deemed to include the specific products of the assessee being taps, valves and other fittings made of brass which also are used as sanitary-wares, especially for reason of the items mentioned under HSN Codes 7412.20 and 8481, 8481.80 and 8481.80.20 - Chapter 74 of the Explanatory Notes that specific items of copper and its alloys have been identified in eight digit HSN Codes. For example, HSN 7418.10.21 refers to utensils of brass. So also HSN 7418.20.10 refers to sanitaryware of copper. It can be seen that though sanitaryware of brass is not specifically mentioned the products dealt with by the assessee comes under the above extracted entries of 7412 and 8481. When we look at Entry 3(2) in Third Schedule, it can be seen that it does not take in all articles of brass. Entry 3 going by the heading takes in only such articles and other utensils of aluminium, brass, bronze, copper, etc. other than those specified in any other Schedule of the Act. HSN Code 7419.99.30 to which Entry 3(2) of the Third Schedule is aligned, speaks of Articles of brass under HSN 7419.99 with heading Other which takes in only those Articles not mentioned elsewhere - Thus this part answered against the assessee and in favour of the Revenue. HSN Codes - HELD THAT - The products of the assessee though can be used as sanitarywares, also are used in general water supply and are covered under the various HSN codes as tubes or pipe fittings, taps, cocks, valves and similar appliances for pipes respectively coming in HSN Codes 7412 8481 - The products dealt with by the assessee cannot be covered as sanitaryware under 7418.20.10. The answer however does not interfere with the tax effect of the products which we have held to be covered, otherwise, under the SRO itself. The inclusion of the products under Entry 101 does not fall foul of Annexure-D judgment, since we found that it does not declare specifically as to under which entry the brass products of the assessee fall. Appeal dismissed - decided against appellant.

Summary

Issues Involved:

1. Justification of the Authority for Clarifications in holding specific orders as sufficient for taxing water supply and sanitary fittings at 12.5%.
2. Classification of brass articles under HSN codes.
3. Inclusion of brass articles under specific entries of SRO 82/2006.
4. Interpretation based on common parlance versus HSN codes.
5. Applicability of Rule of Interpretation guidelines to commodities with HSN numbers.

Issue-wise Detailed Analysis:

1. Justification of Authority for Clarifications:

The appellant contested the Authority for Clarifications' decision that water supply and sanitary fittings are taxable at 12.5%. The Court noted that the appellant's registration was canceled in 2012, and the appellant had not pursued the issue after a 2008 judgment directed reconsideration. The Court observed that the appellant's late re-engagement in 2019 and the issuance of Annexure F lacked clear reasoning.

2. Classification of Brass Articles under HSN Codes:

The Court examined the classification of brass articles under HSN codes. The Commissioner classified sanitary equipment under HSN 7418.20.10, which pertains to copper articles. The Court found this classification incorrect, noting that sanitaryware made of brass should not be classified under HSN 7418.20.10, which is specific to copper.

3. Inclusion of Brass Articles under Specific Entries of SRO 82/2006:

The Court reviewed whether brass articles fall under Entry 101 of SRO 82/2006, which taxes certain water supply and sanitary fittings at 12.5%. The Court highlighted that Entry 3(2) of the Third Schedule covers articles of brass (HSN 7419.99.30). However, it clarified that sanitaryware and fittings made of brass are not included in this entry, as they are covered under different HSN codes such as 7412 and 8481, which deal with pipe fittings, taps, and valves.

4. Interpretation Based on Common Parlance versus HSN Codes:

The appellant argued that the interpretation should follow HSN codes, while the Authority applied the common parlance test. The Court found that the Authority's reasoning was flawed but upheld the tax levy under SRO 82/2006, indicating that the products in question are used in general water supply and are classified under relevant HSN codes.

5. Applicability of Rule of Interpretation Guidelines:

The Court referred to the principles of interpretation of entries bearing HSN codes, emphasizing that commodities with specific HSN numbers should be interpreted based on those codes. The Court concluded that the items mentioned under HSN 7419.99.30 are those not specified elsewhere, thus excluding the appellant's products from this classification.

Conclusion:

The Court dismissed the appeal, affirming the tax levy under SRO 82/2006. It clarified that the appellant's products, though used as sanitaryware, are classified under HSN codes for pipe fittings and valves, not under the general category of articles of brass. The Court's decision was based on the specific HSN codes and the rules of interpretation, ensuring that the classification aligns with the statutory framework.