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TMI Blog2002 (12) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... lsifier which is really a vegetable based fat. Whatever be the reason for it, perhaps as pointed out by the learned Senior Counsel Sri Sarangan who appears on behalf of the petitioners, it was due to mistaken advice, that this plea was canvassed; we are not at all surprised at the fact that the department rejected this contention but the error committed appears to have been that without any application of mind, the product was straightaway relegated to the residuary category. There is a very detailed order passed by the Karnataka Appellate Tribunal which in our considered view was nothing short of a waste of time because a couple of hundred cases have been referred to in support of the elementary proposition that the item in question cannot be classified as a chemical. The present petition assails the correctness of that order. 2.. Mr. Sarangan, learned Senior Counsel who represents the petitioner-company at the commencement of his arguments sought the permission of the court to contend that the item in question should be classified under the Second Schedule, Part E1(iii) "hydrogenated oils and cooking medium". What he pointed out on the basis of documentary evidence before us was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by them and pending the final decision in the litigation they were advised not to collect tax at the higher rate as this would go against their stand in the litigation in so far as the department would contend that they have accepted the classification. Mr. Sarangan produced before us the company's records which do establish that the tax was only being collected at the lower rate from the customers and that the company has pointed out to the department that the balance to make up the higher rate of taxation was being paid by the company under protest and that the same would be liable for refund with interest in the event of their succeeding in the litigation. In this particular case therefore, it is clear to us from the material produced that the differential tax was paid by the company and that consequently, they would be entitled to a refund if it is held that they are entitled to a lower rate. Before we address ourselves to the main controversy, we need to deal with one unusual aspect of the case and to give our ruling on the preliminary objection canvassed by the learned Government Advocate. 3.. The learned Government Advocate vigorously contended that the moment the learned S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow wellsettled in so far as it would not be permissible to virtually drag an item and classify it under a particular entry by adopting what we may define as an over-stretching process unless it clearly answers to the description of that item. Also, what we need to take into account is the well-settled principle in law that where there may be a clear ambiguity, that the view, which benefits the assessee will have to prevail. The Supreme Court in the decision reported in [1973] 88 ITR 192 (Commissioner of Income-tax, West Bengal v. Vegetable Products Ltd.) and the courts in several other decisions have consistently taken this view. Also what we need to restate is that merely because there is some difficulty in the process of what we may call 'correct or absolute fitment' as far as the entries are concerned, that the mechanical process of straightaway consigning the item to the residuary entry may not always be the correct method of deploying the taxation process in so far as the test of categorising must be under the 'next best head' provided it answers rationally and generally to that description and this would be the correct formula that is required to be applied. We have very brie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new argument because on a total reconsideration of the case and the law as now laid down by the High Court of the next best categorisation formula that it is open to this Court to consider the alternate plea. It is not unusual for courts to permit a new or different argument at a subsequent stage of the proceedings and furthermore, what we have taken serious note of is the important question as to which of the parties before us is the defaulter and on whom would the consequences be visited. We have no hesitation in holding that while the department is justified in concluding that the product could not be categorised as a chemical it was equally wrong on its part to have straightaway relegated the product to the residuary category. The main reason for this is because the item in question is a vegetable based edible cooking medium used in the production of cakes and from its chemical composition and consistency there could straightaway be little dispute of the fact that it was almost on par with hydrogenated vegetable oils and in this background if the department has wrongly classified the item and they demanded and collected tax at a higher rate, then the department who is the defa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble laboratories if they so desire. The petitioners were also directed to furnish a copy of their affidavit along with the test reports to the department well in advance so that it was open to them if they so desire to refute or dispute any of that material. The petitioners have complied with these directions and it is a matter on record that the department has not either refuted or disputed any of the averments in the subsequent affidavit which in turn establishes that the gel in question is a vegetable oil based product which compares with margarine or any other hydrogenated edible oil. This being the position, it is not open to the department to contend that by virtue of the alternate submissions canvassed on behalf of the petitioners that the department has either been handicapped or prejudiced in any manner whatsoever. It was open to the department to dispute the documents or to effectively oppose all the averments through a reply, none of which have been done, and consequently this Court would be fully justified in relying on all that material. 8.. Along with the affidavit that has been filed the petitioners have produced before us the analysis report from the CFTRI at Myso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of fact would certainly have had to be agitated at the departmental level. Secondly, we are guided by no less than 16 decisions most of them of the Supreme Court and a few of the High Courts wherein in every case relating to disputes concerning classification even at the level of the Supreme Court, the court has looked at the most reliable evidence such as analysis reports from reputed laboratories or certificates from the accepted authorities and recorded its findings. This, in our considered view is very necessary because the experience of the courts, whenever cases are remanded, has been most unsatisfactory. We need to mention that the whole purpose of remand has been totally frustrated in almost everyone of this class of cases because the department at all levels apparently gets annoyed because of the remand and impertinently passes the same order as on the earlier occasion and ultimately it is on the second round that this Court has to evaluate and decide. One of the reasons why the courts often refuse a remand is because they have a foresight to anticipate as to what is likely to happen and if the purpose of the remand is going to be an empty exercise a remand is perfectly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this stage itself. That is within the scope of the revisional powers because the essential purpose of a revision is to correct an error apparent on the face of the record and to consequentially modify the earlier order. It is a fine distinction and in the majority of cases it would be limited to deciding a purely academic legal issue but the case law on the point clearly postulates that even a mixed question of fact and law wherein an order requires to be revised is within the scope of revisionary powers of the High Court. It is true that many a time the High Court will not take on the role of the initial or appellate authority and would remand the case with appropriate directions but here again we have indicated cogent reasons why such a procedure is contraindicated. Modern thinking which lays emphasis on expediency of disposal and frowns upon remands requires a slight change of approach in appropriate cases. Undoubtedly, it involves a level of discretion which we have consciously exercised as this is a case which warrants it. The length of the litigation, the number of years that have elapsed and the consequences to the assessee are all factors which have been evaluated by us whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1994-95. 3. Petitioner an assessee, registered under the Karnataka Sales Tax Act, 1957 and Central Sales Tax Act, 1956, deals in bakery raw materials like cakes, cake improver, etc. The assessee filed his annual return in form 4 declaring his total and taxable turnover. Petitioner was heard by the assessing authority. The assessee/petitioner has effected sales of cake improver taxable at the rate of 4 per cent as sales as "chemical". The assessing authority ruled that the products manufactured by the assessee cannot be termed as chemical and therefore it is to be taxed at 8 per cent. Objections were considered and after considering the same the assessing authority rejected the contention of the petitioner. A first appeal was filed before the Joint Commissioner, Commercial Taxes, who did not accept the contention of the petitioner. Thereafter a second appeal was filed before the Karnataka Appellate Authority. (KAT). The KAT also dismissed the appeal. Petitioner is now before this Court by way of a revision petition under section 23(1) of the Act challenging the order of the KAT. Petitioner has raised the following question of law for decision of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the preparation of the goods for preparing of cakes to improve the structure. The product gel could not be mistaken as test chemical covered in Part C of the Second Schedule to the Act. This was the specific stand taken before the assessing officer. Before the first appellate authority the petitioner reiterated that the products of the petitioner is nothing but chemicals falling under the entry 10A of the Second Schedule to the Act. 11.. In the second appeal before the Tribunal also the petitioner specifically contended that the authorities had failed to appreciate the scope of entry 10A of Part C of the Second Schedule. The said entry is very wide and the entry reads: "Chemicals other than caustic soda." Petitioner's specific stand was that these goods fall under this item only. Petitioner further contended that the goods dealt by the petitioner that is "gel " must be considered only as chemical for the chemical reaction it does with the substance used. The item must be interpreted as chemicals and nothing else. The Tribunal based on these facts framed the following questions in para 4 in page 9 reading as under: "Whether the appellant deals in chemicals or non-chemica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eously any question of law. Jurisdiction of this Court is confined to either failure to decide or erroneous decision by the Tribunal in an order passed under section 22. In the case on hand the Tribunal has passed an order based on a contention that the products of the petitioner is not a chemical falling under entry 10A of the Act on the pleadings placed before it. Therefore the present stand of the petitioner to the effect that the product falling under hydrogenated gel cannot be permitted to be a basis in considering the order of the Tribunal in this revision. 16.. In the circumstances and in the light of the petitioner giving a complete go by to earlier stand of his product falling under section 10A, the Tribunal is right in passing the impugned order. 17.. In this connection it is useful to notice a decision of this Court while interpreting section 23 of the Act. A division Bench of this Court in the case of Calicut Trading Co. v. Deputy Commissioner of Commercial Taxes, Intelligence, Mysore Zone, Mysore reported in [1998] 110 STC 195, while considering the scope of section 23, in para 9 has ruled that: "We have heard the learned counsel for both the parties and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne and propylene glycol), soap 3 per cent and fat 6 per cent. The product is nothing but a chemical used by the bakers for baking cakes." 21.. In the petition also the same is reiterated in terms of annexure D. The Central Food Technological Research Institute has given the fat content 49.50 per cent. The same is not fully accepted by the petitioner. The Veermata Jijabai Technological Institute report shows the percentage of fat is 79.35 per cent. The State Public Health Laboratory, Pune, has given the fat content as 80 per cent. 22.. These materials show that there is inconsistency in the readings submitted by the different institutes. It is not safe to place reliance on this contradictory readings. Reported in [2001] 123 STC 463 (Blaire Refrigeration Services v. Additional Commissioner of Commercial Taxes).-Ed. 23.. In the result I do not find any merit in the revision. Revision stands dismissed. [In view of the difference of opinion between SALDANHA, J. and GURURAJAN, J., the revision petition came on for hearing before BHARUKA, J., and the learned Judge delivered the following judgment on December 13, 2002.] G.C. BHARUKA, J.-It is rather amazing that despite the law relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These goods are branded as "Helios gel" and "Helois mix". The specific and consistent stand of the assessee before the departmental authorities and the Appellate Tribunal had been that it manufactures "gel" (a) by dissolving the emulsifier blend in polyvalent alcohol at desired temperatures; (b) potassium/sodium stearate is mixed with fat in water separately; (c) the mixture of (a) and (b) is mixed under controlled conditions with agitation; (d) the finished product gels on cooling and then packed. 5.. As could be found from the order of the Appellate Tribunal, the composition of gel manufactured by the assessee consists of water 29 per cent, emulsifier 35 per cent, polyvalent alcohols 27 per cent, soap 3 per cent and fats 6 per cent. Admittedly, the gel manufactured as above, is sold to confectioneries and bakers. It is also not in dispute that "gel" is used as a cake improver and is known as such in the trade. It is an edible substance. It provides sponginess to the cakes, improves its consistency and the shelf life. In the trade, i.e., persons conversant in dealing with gel, it is neither regarded or called as chemical or edible oil. Still the plea of the assessee before the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on this report, accepted the assessee's case and held that the gel manufactured by the assessee falls under the head "hydrogenated oils and cooking medium". But, Gururajan, J., has recorded dissenting opinion, because according to him, it is impermissible on the part of this Court to allow assessee to build up a new case on fact and thereupon grant the desired relief. 8.. There are innumerable cases laying down the principles governing classification of goods for fiscal statutes including those which are "law" under article 141 of the Constitution and binds all including this Court. It clearly says that the goods, the sale of which, are to be taxed under the sales tax laws, have to be construed in the sense in which they are popularly understood by those who deal in them and who purchase and use them. (See Commissioner of Sales Tax, U.P. v. S.N. Brothers [1973] 31 STC 302 (SC); AIR 1973 SC 78). In this case, the Supreme Court has further held that "the extreme, peculiar and scientific meaning of the goods which might sometimes deviate from the popular meaning, cannot prevail". Reliance was placed on the judgment of 5-Judge Bench in the case of Ramavatar Budhaiprasad v. Assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o entries which comprised non-edible commodities. 12.. Furthermore, "gel" manufactured by the assessee, may have fats as one of its nutrient component but that by itself can hardly be of any consequence in classifying it in one or the other entry of the statute like the Act. All edible substances will have "fats" in varying percentages. This can hardly be a ground for classifying goods for taxing purposes. The courts have taken the view that even ice and water, which have the same and exact chemical composition, i.e., two atoms of hydrogen and one atom of oxygen, are commercially different commodities for the purpose of taxing statute. There cannot be a better illustration than this to demonstrate the fallacy in identifying the commodity by basing the reasoning on chemical compositions, and similarly the nutrient value of edible goods. 12a. Further, the emulsifying agents and stabilising agents have been defined in rule 60 of the Prevention of Food Adulteration Rules, 1955 (in short, "the Rules"). These are defined to mean "substances which, when added to food, are capable of facilitating a uniform dispersion of oils and fats in aqueous media, or vice versa, and/or stabilising s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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